Disability vs Critical Illness Insurance What’s The Difference?

When diagnosed with a serious illness, many people need to take some time off work. While your medical bills may be covered by health insurance, consider all the other expenses you incur like food, rent, and bills. Unless you have a sizeable nest egg, chances are you don’t have enough savings to take a long time away from work.

There are two main types of insurance that can financially protect you in the event of a serious illness: disability and critical illness insurance.

We discuss both of these, how they work, and the differences between the two to help you decide which policy is right for you.

How is disability insurance different from critical illness insurance?

There are several differences between disability and critical illness insurance. Here are the main ones you need to know about:

Employment status – Disability insurance will only cover you if your health condition stops you from working. A critical illness policy, on the other hand, will cover you for serious illnesses, no matter your employment status.

Payment methods – A critical illness benefit is paid as a lump sum while disability benefits are paid as monthly income.

Tax treatment – Critical illness payouts are tax-free, while disability payouts can be subject to income tax.

What is critical illness insurance, and what does it cover?

Critical illness insurance gives you a tax-free lump sum if you become sick. There are no restrictions on how you use the money. You could use it to cover medical expenses, to modify your home (e.g. installing a ramp for wheelchair access), or other financial expenses like food and housing.

It’s important to note that you can only claim critical illness insurance if your diagnosis is covered by your policy, and your doctor has to provide the appropriate paperwork as proof. There are up to 26 critical conditions that may be included in your policy like heart attack, cancer, or stroke. The specific coverage will depend on your insurance policy.

What is disability insurance, and what does it cover?

Disability insurance temporarily replaces your income if are force to take time off work due to an illness. The insurer will pay you until you can go back to work, or until the maximum payment duration specified on the policy (e.g. 2 years, 5 years or up to age 65), and they won’t pay you beyond this, even if you are still sick.

The insurer will only pay you a percentage (usually around 60-80%) of your lost income. This means that if you are forced to go from full-time to part-time hours due to your illness, then you will only be able to claim the hours you can no longer work.

Your doctor will also need to provide documents to prove that you are unfit for full-time work because of your health.

Should I get disability insurance or critical illness insurance?

You can choose to have one or the other or both. It really depends on your personal circumstances, savings, and debt levels. You may also want to consult a life insurance planner to discuss which type of policy fits you best.

Who can apply?

Disability insurance is only available to people who are employed and under age 65.

Critical illness insurance, on the other hand is open to everyone, whether you are working or not. Some of the people who are eligible for critical illness insurance but not disability insurance include:

  • People aged over 65
  • Homemakers – If an illness prevents them from doing their usual tasks, you may need to pay someone to help with chores
  • Children – If a child becomes seriously ill, they may have special needs that strain the family finances, or a parent may need to take time off to care for them.


Serious illnesses can have a huge impact on a family, not only just physically and emotionally, but also financially. Disability insurance and critical illness insurance can help you eliminate the financial stresses so that you can focus on your health and wellbeing and that of your family.

Email address: greg@dundas.life

Greg is President of Dundas Life. They are on a mission to help people find the right insurance coverage for their needs. Dundas Life uses technology to offer personalized advice and the best rates on insurance you need. Visit dundaslife.com and get started in 5 minutes or less!

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